Bankers expect RBI to cut policy rate by 0.75% next fiscal

Bankers today said the Reserve Bank's status quo policy stance was on expected lines but expressed hope that the central bank would cut policy rate by up to 0.75 percent during the course of next financial year. "The RBI policy announcement of a status quo was on expected lines. With the RBI clearly mentioning that inflation trajectory is evolving as per expectations there are reasons to believe that RBI will continue in an accommodative mode," SBI Chairperson Arundhati Bhattacharya said.

According to HDFC Bank Chief Economist Abheek Barua: "The RBI is unlikely to go against the international trend of monetary easing and 0.25 percent or possibly 0.50 percent of policy rate cut continue to be our base-case scenario for 2016." It is expected most likely earliest date for easing, he said. RBI is scheduled to unveil first bi-monthly monetary policy for 2016-17 on April 5. The central bank today left the key policy rate unchanged but indicated at accommodative stance, saying with inflation moving closer to the target there would be more room for rate cut to support growth.

The repo or short-term lending rate remains unchanged at 6.75 percent and the reverse repo rate at 5.75 percent. On liquidity, Bhattacharya said there remains a concern with systemic liquidity deficit well in excess of the prescribed 1 percent total deposits currently. "With revised Liquidity Coverage Ratio kicking in and deposit growth lagging, RBI may have to be proactive in managing the liquidity deficit through tools available at its disposal," she said.

Asserting that policy announcement is in line with market expectations, ICICI Bank Managing Director Chanda Kochhar said the RBI has rightly indicated that it would watch the growth trends, the fiscal approach to be articulated in the budget and the factors impacting inflation in the coming months. Commenting on RBI monetary action, Yes Bank CEO Rana Kapoor said with CPI inflation poised to moderate to 5 percent levels by end FY17 and government committed towards spurring investment led growth and maintaining high quality fiscal consolidation, incremental room for monetary accommodation will open up post the announcement of Budget. "I expect the RBI to play a complementary role and lower rates by 0.75 percent in 2016," Kapoor said.